Updated Wednesday, August 27, 2014 as of 9:06 PM ET

UBS Said to Plan 10,000 Job Cuts as Investment Bank Shrinks

UBS AG, Switzerland’s largest bank, will cut as many as 10,000 jobs companywide as the trading business shrinks, a person with knowledge of the plan said.

Many of the reductions will come in the trading businesses overseen by investment-bank co-head Carsten Kengeter and probably will occur over several quarters, said the person, who requested anonymity because the plans haven’t been made public. An announcement may come when UBS reports third-quarter earnings on Oct. 30, the person said.

Chief Executive Officer Sergio Ermotti, 52, is overhauling the bank as Swiss regulators pressure UBS and Credit Suisse Group AG to boost capital and scale back trading and investment- banking operations. Like rival securities firms, UBS has been struggling to boost profitability as client activity and trading remain sluggish.

“It was a loser’s game for them,” said Terry Connelly, former dean of the Ageno School of Business at Golden Gate University in San Francisco and an ex-managing director at Salomon Brothers Inc. “It wasn’t their fault, they simply tried climbing the wrong mountain.” High fixed costs and weak demand have made it harder to be profitable, and the industry will have to shrink more, he said.

‘Paradigm Shift’

Ermotti told his staff in a memo this month he’ll do whatever it takes “to tackle the current challenging market environment and paradigm shift” in banking and will continue “remodeling” UBS. He said in July that the market environment has completely changed since the firm announced reorganization plans for the securities unit in November.

UBS is a microcosm for the industry,” Mark Williams, a lecturer at Boston University’s School of Management, said in an interview. “The banking business model is changing and we’ve got to look at cost structure, we’ve got to look at compensation, and we’ve got to readjust.”

The bank had about 63,250 employees as of June 30, according to its most recent financial report, which means the staff cut could equal 16 percent. UBS already announced it is reducing risk-weighted assets at the investment bank by more than half from September 2011 levels, mostly in fixed income.

The plan will lead to a further reduction of as much as 100 billion Swiss francs ($107 billion) of risk-weighted assets, the person said. Much of the fixed-income operations will be put in a new unit that will hold non-core assets, and Carsten Kengeter, currently co-CEO of the investment bank, will probably give up his current role to head the new unit, the person said.

Equity House

The remaining businesses at the investment bank will include a slimmed-down advisory unit, equities trading and research, foreign exchange, government debt trading and limited credit and corporate bond trading, according to the person familiar with the bank’s plans. Capital demands by Swiss regulators, among the strictest in the world, are making it hard for UBS to compete in capital-intensive businesses such as fixed-income trading.

UBS is going back to its roots, becoming an equity house with a strong equity capital markets franchise,” said Kian Abouhossein, a London-based analyst at JPMorgan Chase & Co. “It will take time to unwind.”

The staff cuts were reported earlier by the Financial Times. The eliminations will lead to changes in senior management and reduce costs in the bank’s support functions including information technology, the FT said.

Serge Steiner, a spokesman for the bank, declined to comment. Since taking office last year, Ermotti has been working to cut production costs across all of the bank’s businesses.

Orcel’s Role

The changes at the investment bank may mean a bigger role for 49-year-old Andrea Orcel, who co-heads the unit with Kengeter, 45, three people with knowledge of the matter said. Kengeter has run the investment bank since April 2009, first as co-head with Alexander Wilmot-Sitwell, then alone, and since July with Orcel, a former top dealmaker at Bank of America Corp.

The firm’s boards met in New York this week to consider the reorganization of the unit that include cuts centered on the fixed-income for which Kengeter has been responsible since 2008, the people said.

Reveal Value

The investment bank has suffered lapses that shook Zurich- based UBS, the world’s second-largest wealth manager. Losses during the subprime crisis forced UBS to seek a bailout from the Swiss government in 2008 to help it spin off toxic assets. Last year a $2.3 billion loss from unauthorized trading led to the departure of CEO Oswald Gruebel.

“Investors want UBS to reveal the value of the asset and wealth management businesses, which will make 26 percent returns on our 2013 estimates, and downsize materially the investment bank, which struggles to make single-digit returns,” said Huw van Steenis, a London-based analyst at Morgan Stanley.

Lack of demand in the banking industry means another round of dismissals is likely on Wall Street, permanently damaging careers of some investment bankers, Connelly said.

“People will have a while on the beach,” he said. “Their business has been commoditized to the point where their brains don’t count as much. A lot of investment bankers will have to find another way to make money.”

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